The Hindu Business Line : Low liquidity spurs fall in GDR holding

DESPITE increased FII interest in the Indian equity market, there has been a significant shrinkage in the global depository receipt (GDRs) base of Indian companies.

Investors have converted GDRs of several Indian companies into domestic shares and sold them in the local market. Market analysts attribute this trend to two factors: Arbitrage opportunity and low liquidity in the GDR market.

According to the analysts, GDR holdings in several Indian companies have declined over the last year (from March 2003 to March 2004). As many as 30 out of the 40 Indian companies that have GDRs witnessed a drop in their GDR numbers.

Said Mr Arun Kejriwal of KRIS Research: "Arbitrage benefit between the local market and the GDR market is the main factor for the decline in GDR holding." He said whenever GDRs are trading at a discount to the local shares, investors buy them and sell them in the domestic market.

The companies that have witnessed a fall in their GDR holding include Ashok Leyland, Raymond, Tata Motors, Flex Industries, Great Eastern Shipping, Bajaj Auto and Grasim.

A top official of a foreign broking firm said, "Low liquidity in the GDRs of most Indian companies is one of the key factors for their conversion into local shares. ... There's hardly any trading in most GDRs of Indian companies. A large number of GDR holders have converted them into local shares and sold them in India."

According to brokers, the rise in the stock price of most of the companies in the last year is the reason for GDR holders to exit.

Mr Kejriwal, however, said, "There has also been an increase in the GDR holding in some companies and that is also due to the arbitrage opportunities." He said in this case, the GDRs are trading at a premium to the local shares. Some of the companies in which this trend can be seen include Reliance Industries, Larsen & Toubro, Mahindra & Mahindra and Hindalco.

The brokers said the holding in American depository receipts in companies that have issued them have not come down as most of them trade at a premium to the local shares.

More Stories on : Investments | Overseas Borrowings

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Low liquidity spurs fall in GDR holding

Motorola plea on Iridium to be heard this week

Nicholas Piramal to test FMCG style for promoting drugs

Academia taking to patenting, but slowly

Suzuki Alto drives Maruti's exports to new high

Rajendra Babu sworn in as CJI